Low credit scores mean one-third of Americans can't get a mortgage

Despite reports that the recession is "over" and loan rates are dropping, one-third of Americans still can't get a mortgage because their credit scores are too low. That's the latest from a mortgage market analysis just released by real estate web site Zillow. The economists who crafted the new report, titled Zillow Mortgage Marketplace Analysis, studied Zillow's data of more than 25,000 loan quotes and purchase requests during the first half of September.

Stan Humphries, Zillow's chief economist who has a PhD in Government, acknowledged that while it isn't a shock that, as a group, we're having trouble getting a mortgage. But even he was surprised that people with a credit score of 620 or less weren't getting even one loan offer, even one with a ridiculously high interest rate. For comparison's sake,. Humphries says that five years ago, homeowners with a credit score of 620 or less made up 20%of home sales. Now, that number has dropped to almost zero.

And Humphries doesn't think things are going to get better any time soon. He believes houses are still depreciating and that they'll likely continue to for the rest of the year. "Once we hit bottom, I think it'll be three to five years after that before the housing market returns to any normalcy," . Humphries says. "It'll take that long to clear out the macro economic factors that created this situation."

Those factors, says Humphries, include the glut of homes still going through the foreclosure process and a lot of homeowners with high rates of negative equity. In other words, it's going to take a while for things to work themselves out.

So what's the sweet number you should be shooting for if you want to land a good loan? A credit score of 720 should do it, according to Humphries, who adds that your interest rates and offers won't get markedly better if you have a score between 720 and 760 -- the gateway to a good mortgage is 720.

Of course, good credit should lead to a good interest rate, but here's the sad irony: People with lousy credit were allowed to buy homes that would, thanks to initially low, subprime rates that later gave way to exorbitant interest rates, eventually become unaffordable. That led to a housing market that now has extremely attractive interest rates and low monthly payments, the perfect situation for all those people who have worse credit than ever and are desperately trying to hang on to homes that they can't afford."

So how unusual is all of this? "These are the lowest mortgage rates since at least 1971," says Humphries, who notes that the data on interest rates before 1971 isn't very thorough. "Meanwhile, in terms of the decline of home values, while we've seen regional home values plummet over the past 30 to 40 years, we've never seen anything quite like this on a national level, when it comes to not being able to get access to credit for homes, since the Great Depression."